Adidas is officially on the road to breaking up with Reebok.
The German athletic giant has concluded its assessment of strategic alternatives for its struggling Reebok brand ahead of schedule, ultimately deciding to start the formal process to divest the footwear-focused company, which it bought for $3.8 billion in 2006.
Adidas was expected to announce its decision at its virtual investor and media day on March 10, where it will now provide additional details on its post-Reebok strategic business plan through 2025.
Accordingly, Adidas is going to report Reebok as “discontinued operations” in its earnings reports from the first quarter 2021 onwards.
The company’s asking price for Reebok has been in the range of $2.4 billion, according to a report from German business publication Manager Magazin. The report, which first surfaced speculation that Adidas was looking for a Reebok sale, indicated that CEO Kasper Rorsted would accept less in an acquisition.
Reebok is still a widely known entity despite its declining stature, and has attracted a vast array of suitors. Brand management firm Authentic Brands Group (ABG), which has gone on its own shopping spree in the past two years by scooping up struggling major fashion brands including Barneys, Forever 21, Lucky Brand Dungarees and Brooks Brothers, showed interest in the brand, according to an individual familiar with ABG’s thinking.
Additionally, Manager Magazin reported in October that other potential bidders for Reebok include VF Corp., which owns the Timberland and North Face brands and recently purchased Supreme, as well as China’s Anta International Group Holdings.
The Financial Times in November said that potential suitors include private equity firms Triton and Permira, which still owns 43 percent of Dr. Martens after spinning off the footwear brand into its own $5 billion public company on the London Stock Exchange. Triton does not operate any other apparel or footwear brands.
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In December, hip-hop business mogul Percy “Master P” Miller confirmed that he and a team including former NBA player Baron Davis were in negotiations to acquire Reebok.
Rorsted acknowledged Reebok’s promising potential under new ownership.
“The long-term growth opportunities in our industry are highly attractive, particularly for iconic sports brands,” Rorsted said in a statement. “After careful consideration, we have come to the conclusion that Reebok and Adidas will be able to significantly better realize their growth potential independently of each other. We will work diligently in the coming months to ensure a successful future for the Reebok brand and the team behind it.”
Adidas acquired Reebok in 2006 for approximately 3.1 billion euros ($3.8 billion) as it sought to stay competitive with Nike, but the Reebok brand struggled to find its footing and meet growth expectations.
In 2007, one-quarter of Adidas’ total retail sales—more than $2 billion—came from Reebok. Despite a bounce back to short-lived profitability in 2019 in the wake of Reebok’s “Muscle Up” turnaround plan, which generated sales growth with new footwear lines like the CrossFit Nano and the FloatRide Run, the Covid crisis foiled those efforts as it impacted footwear sales across the board.
In the third quarter of 2020, Reebok’s brand sales plummeted to just 6.75 percent of Adidas’ total take. Adidas wrote down Reebok’s book value by nearly half last year compared with 2018, to 842 million euros ($1.02 billion).
As the Covid-19 pandemic hurt most apparel and footwear companies, it did the same for Reebok and Adidas. Reebok saw currency-neutral net sales dip 19.9 percent in the first nine months of 2020, slightly worse than the 17.9 percent drop at Adidas.
At least on the surface, Adidas believes that Reebok was able to “significantly improve its growth and profitability prospects,” since the “Muscle Up” turnaround, indicating that the brand has an opportunity to capitalize on its full potential in the global sporting goods market under another company’s umbrella.
The Reebok divestiture could potentially mean a new direction for the overall Adidas brand as well, as indicated by the company’s hyping of its five-year strategy unveiling. It’s not out of the question that Adidas, which has set its sights on sustainability in recent years, could open up the wallet for a more popular DTC brand like Allbirds that’s also focused on eco-friendly material innovation and responsible production. The companies already entered a partnership last May with the goal to create a performance shoe with the lowest carbon emissions on the market.
Allbirds’ most recent $100 million funding round brought the wool-based footwear company’s valuation to a reported $1.7 billion, making it well within Adidas’ price range.